From the Classical Liberal perspective, government in modern societies neither promotes the public interest nor serves as benevolent guardian protecting the property and rights of all citizens. Just the opposite is true; government is a predatory oppressor, extorting money from citizens and limiting their freedom. Moreover, government is the primary tool by which powerful groups secure their privileges and oppress their fellow citizens. At best, government is an inefficient bureaucracy, squandering resources while providing services that, for the most part, are either unnecessary or could have been produced in the private sector at lower cost.

The Classical Liberal analysis of government is called "public choice theory." Pioneered during the 1960s by Anthony Downs, James Buchanan, and Gordon Tullock, this body of ideas reflects the application of neoclassical economic analysis to the political process. The theory assumes that the self-interested, maximizing behavior attributed to individuals in the market applies as well to political activity. Unless constitutional constraints on the boundaries of political choice are strictly maintained, the pressures created by individuals and groups seeking to advance their self-interest via the political process will result in continual growth of government and a corresponding threat to both liberty and efficiency. Public choice theorists do not blame individuals and groups for utilizing whatever means are available to attain their goals; rather, they blame the judiciary branch of government, particularly the Supreme Court, for failing to adhere to the "original intent" of the framers of the Constitution to minimize the role of government. From the Classical Liberal perspective, the proliferation of new laws, regulations, and public policies in recent decades goes far beyond constitutional limitations on government activity.

Public choice theory focuses on three aspects of the political process: the behavior of interest groups, the behavior of politicians and bureaucrats, and the behavior of voters.

Public choice theorists use the term "rentseeking" to describe efforts by individuals or groups to increase their income by using the regulatory power of government. In economic theory, "rent" is broadly defined as income accruing to a factor of production in excess of what that factor could earn in its best alternative use in a competitive market. Rent arises when the supply of a particular resource is limited so that a higher price does not elicit an increase in the quantity of the resource supplied. An example of economic rent is the high salaries earned by professional athletes because of their rare physical skills.

Businesses and individuals seek rent when they use the power of government to artificially restrict the supply or increase the demand for the resources they own. Economist George Stigler (1911-1991) claimed that much government regulation is initiated by businesses seeking protection from competition. If this is true, then regulations are likely to serve the interests of the affected industries rather than the general public. Government agencies with responsibility for regulation have been "captured" by the very industries they are intended to regulate.

Regulations benefit business when they mandate the purchase of a particular product or reduce competition by blocking entry into an industry. For example, licensing in occupations such as medicine and dentistry limits entry and therefore protects the income of those already in that occupation. Government protection of certain rights for labor unions promotes the interests of union members. Zoning laws protect property values in particular neighborhoods. By increasing the cost of doing business, regulations may actually benefit large corporations by driving marginal firms out of an industry and discouraging the entry of new firms. . .

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